REIT Week 2010: Economic Outlook Optimistic, Except For When it Isn’t

The opening general session of REIT Week 2010, held at the downtown Chicago Hilton by the National Association of Real Estate Investment Trusts, featured two economists in a panel talk called “The Winds of Wisdom and Worry.” The presentation illustrated the old joke about putting all the world’s economists together end-to-end and still not being able to reach a conclusion.

The opening general session of REIT Week 2010, held at the downtown Chicago Hilton by the National Association of Real Estate Investment Trusts, featured two economists in a panel talk called “The Winds of Wisdom and Worry.” The presentation illustrated the old joke about putting all the world’s economists together end-to-end and still not being able to reach a conclusion.

Actually, there was a fair amount of agreement between panelists Morris Davis, assistant professor of real estate and urban land economics at the Wisconsin School of Business, and Robert Gordon, the Stanley G. Harris professor of the social sciences and professor of economics at Northwestern University. Neither they, nor the moderator, David Shulman, distinguished visiting professor-financial leadership program, Baruch College, posited a double-dip recession or a huge impact on the United States of the euro crisis or the like.

“Recovery was inevitable once the panic was over,” said Gordon. “In fact, the recession is over. The economy began to grow a year ago, beginning with those green shoots everyone talked about then.”

Gordon’s opinion on that matter is of some consequence, since he’s a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, whose pronouncements are widely regarded as the last word on whether the U.S. economy’s in recession. Gordon quipped that the other six “fuddy-duddies” on the committee didn’t recognize the fact that the recession had ended already, preferring to err on the side of caution.

If the recession is indeed over, what will GDP growth and the unemployment picture be going forward? Here the two disagreed. Davis predicted an average of 4 percent GDP growth in the coming years, with unemployment arriving at an optimistic 6.5 percent by the beginning of 2013.

When he heard that figure, Shulman, the moderator, said, “As my mother used to say, ‘From your lips to God’s ears.’ ”

Gordon was also skeptical that unemployment would go so low so soon. “It will still be around 8 percent by the end of 2012, which will be problematic for the president’s re-election bid.”

The two also disagreed about the potential impact of the federal deficit in the years ahead. Gordon was more sanguine about it than Davis. “The world is crying out for U.S. debt,” Gordon said. “Let the world buy some more. We should take advantage of the euro-zone crisis while we can.”

Davis came across as more worried about U.S. debt. “The deficit is projected to be 9 percent of GDP for the next 10 years,” he noted. “How can that not lead to a bad outcome?”

As for real estate, the two were more in agreement. Namely, they agreed that things are still pretty bad, and will only slowly improve. Housing starts “will be neutered” for at least a year, Davis said. Residential rents might actually be declining, he added, citing Bureau of Labor Statistics data.

Gordon wasn’t sure about a residential rental decline, instead noting that rents will be probably more stable than up or down in the coming year. “Apartment rents nationwide will be weaker than anticipated because of the inventory of unsold condos,” he noted.